Korea Exchange (KRX) announced on March 22 that 13 KOSPI-listed and over 40 KOSDAQ-listed companies failed to submit their audit reports as of that day, a total of 18 companies received disclaimers of opinion, and four received qualified opinions.
Those in the securities industry point out that this is a predicted event in that the local financial authorities have repeatedly said that the strengthened Act on External Audit of Stock Companies would be applied to business reports pertaining to last year.
According to the revised act, an accounting firm has to take more responsibility than before in the event of any accounting-related problem. In addition, accounting firms in South Korea recently had to face a series of disciplinary measures in the wake of the accounting frauds of Samsung BioLogics, Daewoo Shipbuilding & Marine Engineering, and other companies. This has resulted in more conservative accounting, more disputes with auditees, more overdue submission and more non-unqualified opinions.
Under the circumstances, concerns are rising over the possibility that the revised act would excessively hinder business activities. The financial authorities, well aware of the possibility, already loosened rules related to delisting so that a company with a non-unqualified opinion can remain listed on condition of re-audit within one year or an unqualified opinion in the next audit report. Nonetheless, it is inevitable that more frequent non-unqualified opinions will have a negative impact on the reliability of a number of South Korean companies.
“It is truly shocking that Samil PwC Korea recently gave a qualified opinion to Asiana Airlines, the first non-unqualified opinion of the airline, despite the fact that the airline’s cash flow changed little,” said a local executive, adding, “Smaller firms and KOSDAQ-listed firms are expressing concerns with accounting firms becoming increasingly harder on them.”